Three Years After Its Launch, Foursquare Works to Become a Business

Three years ago this morning, Foursquare launched what one pundit called its “where-am-I-now app” at SXSW – the name did not stick. Since its launch, the location-based service has attracted over 20 million users and upwards of 750,000 merchants, has outflanked a company worth $94 billion in the location space, and crushed a competitor that was sold to said company for its parts.

Foursquare fought its way out of a gladiatorial startup phase, and now finds itself with the responsibility of transforming a product into a profitable company. As we saw last week with the departure of co-founder Naveen Selvadurai, maturity and growth come with costs and the exit of Selvadurai is likely only the beginning.

A handful of drivers ultimately played into Foursquare’s success — namely, a combination of first mover’s advantage, product execution, and talent. Gowalla CEO Josh Williams was a visionary founder but ultimately he wasn’t able to compete with Dennis Crowley’s magnetism. As John Valentine, VP of Sales for LevelUp put it: “Gowalla was never able to capture the attention and adoration of the press like Dennis and Naveen could.”

Others have pointed anecdotally to an early sense of defeat among the Gowalla team. “I was at a geo-social conference out west [in 2010] and one of the leads from Gowalla as well as a lead investor were there, and there was this weird energy in the room,” David Chang, COO of eBay’s WHERE, Inc., explained in an interview with Street Fight. “It was 2010; they were still in the race and they seemed like they had already thrown in the towel.”

Like most consumer tech companies however, Foursquare’s early success largely came down to product execution. The company outpaced Gowalla in almost every aspect of product, framing Gowalla as a clone even if their features had been developed long before Foursquare’s went live.

Moving Past the Check-in
By the time Gowalla relaunched as a social guide in September of last year, the service was dead on arrival. Foursquare was rounding off a fury of updates and partnerships that began to position the product as more than a check-in service. The company was executing on a range of business development opportunities through partnerships with Groupon, American Express, and media companies like Bravo, which brought value-added services to both the consumer and merchant side of its product.

Much of the product development around daily deals and particularly Specials in the spring of 2011 was formalizing a use case that the company had been pushing since its early days. The merchant dashboard, and later the merchant API, finally completed the merchant-user duality that is at the core of Foursquare’s product concept.

At a New York event in August of 2009, Crowley spelled out the strategy: “It’s all about getting the local merchants to interact with the users. It’s completing that circle. Users go to venues, venues offers something to the users, and there’s data passing back and forth, someone’s getting something for free.”

The recent shift towards data shows an incremental but concerted effort to execute on a fairly straightforward roadmap that leads Foursquare into a direct and heated competition with Yelp and Google over the local information space.

Though gamification was critical in helping the service gain early traction, closing the merchant-user loop is central to Foursquare’s transition from product to company. Led by Tristan Walker, Foursquare’s director of business development and the person who many credit for the company’s explosive growth, the company is in the process of making a big play in the loyalty and rewards space. Walker told me recently that the big focus is on building ways for merchants to better measure the effectiveness, and value, of specials and deals run on the platform.

Data
The last six-months has been all about data for the New York-based company. In January, Foursquare began partnering with menu aggregator SinglePlatform to add SKU level menu data to its venue pages; and earlier this week, the company added business hours to its roster of business information.

Through a retooling of its Explore feature in January, foursquare has created value as a local search destination for users who have are not active on the service. “There are a lot of people using Foursquare who aren’t checking in. People just open the app to consume data,” Crowley explained to a crowd at SXSW on Saturday. “That’s a really important and interesting trend.”

The recent shift towards data shows an incremental but concerted effort to execute on a fairly straightforward roadmap that leads Foursquare into a direct and heated competition with Yelp and Google over the local information space. But a move away from the check-in could hurt foursquare down the road: “If people don’t check-in anymore, they won’t have up-to-date records on where their friends are because they aren’t checking in either,” warns Valentine.

The FutureWe asked a few voices from around the industry to weigh in on where Foursquare will be three years from now.

First off, who will own foursquare: the founders, the public, or another company?

David Chang, COO WHERE: “In order to survive in the long-term, Foursquare will need to be acquired by a company with a broader range of defensible assets (e.g., more reach from the consumer side or more traction/relationships from the merchant side). In the LBS space, I think Foursquare has done a good job with raising public awareness as a geo-social app, but it won’t have the critical mass to be a sustainable standalone venture in three-years time.”

Chris Tolles, CEO Topix: “It is important to note that the founders of Foursquare have gone through the acquisition process and subsequent shattering of illusions thereof. Also, Facebook, Yelp, LinkedIn and others have shown that it takes a lot longer to get to a public exit. The question is not whether Foursquare needs to be Facebook to be independent but rather, can it be something around the same size as Yelp or LinkedIn.

How will Foursquare make its money?

Owen Davis, Managing Director NYC Seed: “Targeted hyperlocal advertising is incredibly difficult: you need inventory and consumer location, and foursquare has both. The CPM’s are on something like that is very high. The other thing is to have a back-end customer resource management system for retailors. It’s easy, and it’s built in. Those are high-priced revenue streams that really differentiate foursquare to advertisers.”

David Chang, COO WHERE: “I think the most likely revenue model in the long-term is one that relies on revenues from merchants in the form of advertising or service fees. The question is if their sweet spot will be little merchants or big media brands like Bravo who want to reach their audience.”

Who will be Foursquare’s biggest competitor?

John Valentine, VP LevelUp: “Foursquare’s new strategy is in local search and discovery, and that’s right in Yelp’s wheelhouse. When people want recommendations on where to go for Asian fusion, most immediately open their Yelp app. To thrive, Foursquare needs to supplant Yelp as the local search-and-find app of choice. Foursquare would be an interesting acquisition target for Yelp.”

Chris Tolles, CEO Topix: “I don’t think straight competitors matter much here. It’s the competition for attention. As they grow and add users, the real issue is, whether the foursquare experience evolves into Target (mainstream but still kind of cool) or Ed Hardy (in the remainder bin and only cool with junior high people).”